Filing for Bankruptcy Again — Do You Still Get Protection from Creditor Harassment?

The Impact of a Second Bankruptcy Filing on the Automatic Stay

Under the federal bankruptcy laws, when you file for protection in bankruptcy, whether under Chapter 7 or Chapter 13, you are immediately entitled to the benefits afforded by the “automatic stay.” The automatic stay prohibits creditors from calling, writing or taking any other action to collect the debt from you, other than through the proceedings in the bankruptcy court. There are situations in which, even though you have the right to file for bankruptcy protection, you may be denied the protection of the automatic stay. This blog post provides an overview of those circumstances.

Actions that Can Cause You to Lose the Automatic Stay

When you file a new bankruptcy petition, whether or not you are eligible for the automatic stay will depend on how your prior bankruptcy case was resolved. If you had one bankruptcy case dismissed in the past 12 months (unless the dismissal was because you did not qualify under the “Means Test” or because your budget left you the ability to pay something meaningful to your creditors) the automatic stay will only last 30 days. To keep it you have to show the bankruptcy court that you are re-filing in good faith. This usually requires a satisfactory explanation for the previous dismissal, and a showing that “things are different now”. If you have had two dismissals in the last 12 months, there is a presumption of bad faith, and no automatic stay goes into effect. To get the benefit of the automatic stay you have to overcome this presumption and convince the bankruptcy court that your third filing in 12 months was in good faith..

The “takeaway” lesson here is not to let a bankruptcy case be dismissed if you can avoid it. If you filed under Chapter 13 and it is not working out, you are better off converting to Chapter 7 in most cases. Better yet, make sure you and your attorney have carefully analyzed your options so that you do not end up in a bankruptcy that is not right for you. As always, having the right advice from an experienced lawyer is critical.

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we know that the bankruptcy process can be intimidating and confusing. We offer a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney. For an appointment, call our office at (856) 596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey

Debt Collectors Prone to Violation of Bankruptcy Discharge

A bankruptcy discharge releases the debtor from personal liability for most but not all debts. In essence, the debtor is no longer legally required to pay any debts that are discharged. This discharge is permanent. The bankruptcy discharge is a court order that prohibits the creditors of the debtor from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters and personal contacts.

Upon execution of the discharge order, creditors receive a copy of the order of discharge, and are put on notice that they violate the injunction provisions at their own risk. Such violations of the order of discharge are considered contempt of court. The bankruptcy court has the inherent power to punish for such contemptuous conduct [Code sec. 105 (a) and Rule 9020 (b)]. There are many cases that are used as examples that such violations are not to be taken lightly and will not be tolerated

The discharge is the most important right that bankruptcy affords. It has its limitations, as we have discussed in recent blog articles and discuss below. However, we see with some regularity that some creditors whose debts have been discharged still try to collect anyway. One way they do this is to include fine print stipulations written on the backsides of the notices that are sent, or outright collection efforts.

Some debts are “automatically ” exempt from discharge. These debts include most income taxes, all payroll and sales taxes, alimony, child support and other “domestic support obligations”, and most student loans. If you sign an agreement to reaffirm a car loan or other debt during the bankruptcy and the agreement is approved by the court before your discharge, you have given up the protection of a discharge in the only way allowed for such debts. A discharge also does not protect you from most debts that arise after a bankruptcy filing, including condominium, co-op or association fees. Creditors with collateral, such as mortgage holders have the right to pursue foreclosure, repossession or sale of their collateral if the loan is not current. This right does not extend to trying to collect on the personal obligation. See our recent blog articles on this topic.

If you are facing this type of activity, we recommend you document all the contacts and keep all the notices. Recording telephone calls is a good idea, but only if you advise the caller during the recording that you are recording the call. If you think your rights are being violated, the first step is to send a clear notice in writing to stop, and keep a copy. If the collection efforts persist, it is time to call in experienced legal help.

Neuner & Ventura are experienced attorneys who are federally recognized as a debt relief agency. Our attorneys can help protect you against creditor abuse both before and after a bankruptcy. Please contact Nuener & Ventura at (856) 596-2828 for a consultation.

Mortgage lender sanctioned for violating discharge injunction by repeated calls to discuss alternatives to foreclosure after being told to stop and after debtors locked out of home

An Oregon bankruptcy court slapped Wells Fargo Bank with counsel fees and $4000.00 in damages based on its repeated calls to the borrowers to discuss “alternatives to foreclosure”. (In re Culpepper, 451 B.R. 650 (2012)). The facts of this case are important to understand this result.

The homeowners filed a bankruptcy and initially stated they wanted to surrender their home. Despite this they made three applications for a loan modificatoin, none of which were put into effect. At some point in time they were locked out of the house. Shortly afterwards, they began getting a series of telephone calls. sometimes twice a day to discuss “alternatives to foreclosure”. The savvy homeowner, Ms. Culpepper, recorded these calls (Note: many states make this illegal unless the caller is informed the call is being recorded). The callers were knowledgeable and professional. However, Ms. Culpepper was clearly distressed and repeatedly told them to stop. Each time she was told the calls would stop only if she sent a “cease and desist” letter to a fax number. A total of about 100 such calls continued, even after Ms. Culpepper’s attorney sent a letter to Wells Fargo demanding the calls stop. Fed up, the Culpeppers reopened their case and filea a motion to hold Wells Fargo in contempt of the discharge order.

The court granted that relief, finding that the Culpeppers had met their burden of producing “clear and convincing” evidence that Wells Fargo knowingly persisted after knowledge of the bankruptcy discharge. In awarding damages, the Court had some cogent remarks:

“I find that Wells Fargo knew that the discharge injunction applied with respect to Ms. Culpepper, and I find that Wells Fargo intended to continue to route calls to Ms. Culpepper in an effort to reinstate all of some of a discharged debt, i.e., the Loan, through a loan modification, after Ms. Culpepper had clearly advised knowledgeable, thinking Wells Fargo employees that she was not interested in pursuing a modification of the Loan with Wells Fargo and wanted the calls to stop. Accordingly, I conclude that Ms. Culpepper has established by clear and convincing evidence that Wells Fargo violated the discharge injunction under § 524(a)(2).

 “The question then moves to an appropriate measure of damages. As I indicated in my tentative conclusions communicated at the Hearing, I do not find this case appropriate for the imposition of punitive damages. Ms. Culpepper opened the door to communications with Wells Fargo postpetition and postdischarge through her pursuit of multiple applications to modify the Loan. The specific communications from Wells Fargo representatives consistently and overtly disclaimed any attempt to collect a discharged debt from Ms. Culpepper. If the communications had not persisted in the face of repeated, anguished communications from Ms. Culpepper requesting that the calls stop, the decision could have been different.
 However, the calls did not stop, and there is a fundamental problem with a program of calls where intelligent, knowledgeable Wells Fargo employees cannot take the responsibility to cause such calls to stop in the face of clear communications from a former customer that she has no interest in further pursuing a loan modification and wants such calls to cease. An award of actual damages is appropriate”
Some important lessons apply here. First, borrowers do not have to be subjected to harassment, but they have to develop evidence.  Second, recording the calls, after advising that a recording is taking place, is an excellent gambit. Indeed, such tactics alone may cause the calls to stop. Third, some effort to put into writing a demand to “cease and desist” is important. Fourth, proving damages will require showing how the calls and efforts caused emotional distress. In this case, the Culpepper’s psychologist testified.
At the end of the day, no one should be subjected to this kind of pressure, but if more people call the violators to account, the violations may stop. Assistance of experienced qualified counsel is essential to protect your rights.

After a bankruptcy discharge, what to do when mortgage holders and secured creditors go too far.

A bankruptcy discharge makes most but not all debts legally noncollectable against the person who is discharged. When despite this a creditor tries to collect the discharged debt, the result can be a lawsuit to hold the creditor in contempt for violating the bankruptcy discharge. But not all creditors are prevented from collecting or enforcing their rights.

A bankruptcy discharge does not prevent collection of debts incurred or which arose after the bankruptcy filing. It does not prevent collection of domestic support obligations (eg alimony or child support), most student loans or most taxes. It does not prevent collection of debts which have been voluntarily “reaffirmed” in the bankruptcy (typically car loans and leases)

Those creditors who hold a mortgage or collateral (eg a car loan or lease) are still allowed to enforce their rights as a lien holder. Thus, pursuing foreclosure of a home or repossession of a motor vehicle is allowed. But in these situations, a mortgage lender or other lien-holder can sometimes step over the line if they take action that goes beyond merely enforcing their rights to property, and has the effort of coercing a payment by the individual on the personal debt that was discharged.

This concept that a debt is discharged against the individual, but not against property which is collateral for the debt is difficult from some to grasp. Think of it this way. When we get a mortgage loan or a car loan, we are really making two promises. One is the “IOU” promise to pay back the debt. The other is backing that promise up by giving the lender legal rights to property, eg the home or car. The IOU is what the discharge takes away, but the lender still has the right to get and sell its collateral if the loan is not paid. After a discharge, that is all a mortgage lender has left.

So how far can a mortgage lender go? A creditor violates the discharge injunction when it: (1) intentionally takes action after a discharge, with knowledge that a discharge has been ordered and where (2) the creditor’s action  operates to coerce or harass the debtor  into paying a discharged obligation.  The First Circuit Court of Appeals defined the “objectively coercive” standard in stating that “even legitimate state-law rights exercised in a coercive manner might impinge upon the important federal interest served by the discharge injunction, which is to ensure that debtors receive a ‘fresh start’ and are not unfairly coerced into repaying discharged prepetition debts.”

The line between what is allowed and what is not is not always clear. Here are some recent examples how this might play out:

1. After the debtors had abandoned a home and a foreclosure had proceeded to the point that they no longer had any rights of ownership, a mortgage servicer violated the discharge by sending a letter, entitled “Validation of Debt”, contained information notifying the debtors of the transfer of the loan, the amounts due under the note, and pertinent information for making future mortgage payments, and later letters with additional information about the assignment,
alternatives to foreclosure, and property insurance. . Included in all but one letter was a generic disclaimer stating that  the communications were not attempts to collect debts from customers in pending bankruptcy cases, or those who had already obtained a discharge under the Code. The Maine bankruptcy court found the lender in contempt because at the time these letters were sent, they served no valid purpose served relating to enforcement of the security interest because the lender already had its collateral.

2. In another case, the lender did not violate the discharge when they refused to pursue a foreclosure to completion or to release their mortgage lien, even though this forced the debtors to incure additional expense for insurance and property maintenance.

3. In that same case, the lender did face contempt penalties for demanding payment on the mortgage loan and telling the borrowers their personal obligation to pay on the mortgage loan was not discharged in bankruptcy.

4. In another case, the creditor filed suit against the debtor’s business, naming them individually as nominal parties against whom no judgment was sought individually. Even though the suit looked to be questionable and possibly meant for harassment, this did not rise to a discharge violation. That the debtors had to take time and effort to provide discovey of facts as witnesses in the litigation, that was not enough.

The point is that mortgage lenders and secured creditors do have certain rights, but sometimes they go too far. When that happens it is time to seek legal advice.

 

 

Federal Trade Commission reveals the truth about debt buyers- debtors be savvy and demand proof

A large portion of past due debts are bought by professional “debt buyers” who then attempt to collect the bad debt. The Federal Trade Commission just issued a 162 page report after studying this practice for over 3 years. The report is eye-opening.

The FTC notes that it “receives more consumer complaints about debt collectors, including debt buyers, than about any other single industry. Many of these complaints appear to have their origins in the quantity and quality of information that collectors have about debts.”

The FTC found that debt buyers pay an average of 4 percent of face value, and for older debts, the cost is “significantly lower”. The debt is still fully due, but the buyer’s have a large profit percentage. This reflects, we believe, the inherent riskiness of what is being purchased.

Debt buyers will commonly buy these debts in bulk on an “AS IS” basis. Buyers typically received the basic information required for notices required under federal law, such as the amount of the debt. They also commonly had other information which has to be requested by the debtor by disputing the debt in writing.  This information, the FTC found ” included the name of the original creditor, the original creditor’s account number, the debtor’s social security number, the date of last payment, and the date of charge-off.”

What is revealing is what Debt Buyers did not receive upon buying the debt. This includes the history of previous disputes on the account  or information that would allow them to break down the outstanding balance into principal, interest, and fees.  Most of the time, the FTC found, Debt Buyers received “few underlying documents about debts” such as account statements, loan agreements or other documents showing the terms and conditions of credit. Yet these are the very kinds of proof that a court of law is likely to require if suit is filed.

The FTC found that some debt that was purchased was beyond the statute of limitations, meaning that a suit on the claim could be readily dismissed as time barred, IF the defendant asked.

These findings square with our experience. It usually pays if there is a basis for question to demand the underlying documents and proof of the debt. The results may not be immediate. We have found the same disputed debt being passed from collection agency to collection agency. But many times, the original signed agreements or purchase or charge records simply do not exist.

Of course, no one should ignore collection efforts. It just pays to be savvy and demand proof when appropriate.

 

Judgments have life after bankruptcy, a New Jersey Court rules

We recently posted a discussion of Gaskill v Citi Mortgage, a September 2012 decision by the New Jersey Appellate Division where it denied an application to cancel a judgment under a New Jersey statute allowing that relief any time more than 12 months after a bankruptcy discharge. There is another point the court made: even though the personal obligation underlying a judgment may be discharged and uncollectible against the debtor personally, the judgment creditor can continue to levy on the residence and try to have it sold at Sheriff sale,  for another year! At first this sounds surprising, (how can they collect against my house a debt I do not have to pay?) but on this point, the court got it right. As we will see, this is a problem that can be easily prevented.

The reason is that a judgment in New Jersey becomes a lien on real estate until it is satisfied or removed. A bankruptcy discharge does neither. In most cases, the judgment creditor does not bother trying to have the Sheriff levy and sell post bankruptcy. The reason is simple: most houses have no equity or substantial mortgages. Any money from a Sheriff sale on a judgment must first satisfy the existing taxes and mortgages, and few houses have enough equity to risk the sale price being too low to leave anything for the judgment holder.

Happily, if the homeowner is in a position to keep their home after bankruptcy, there is an easy solution. The Bankruptcy Code has a provision for homeowners to “avoid” a judgment lien to the extent it “impairs an exemption”. In most cases this is the case. [There is a seemingly complicated formula, found at 11 USC 522(f)]. For our clients who want to keep their home and have judgments this is an option. The additional cost of these motions (which are rarely challenged) is worth the peace of mind. The result is a federal court order removing the judgment as a valid lien right away.

This little wrinkle is just one of the many “gotchas” that can lie in wait for the unsuspecting and poorly advised debtor. As in so much more in life, when it comes to hiring the right bankruptcy lawyer, “penny-wise is pound-foolish”. The small extra cost to have it done right is worth it.

Creditors, especially medical bill collectors, ignoring bankruptcy and becoming lawbreakers

In the past year or so I have seen something I hadn’t seen before. More and more clients are continuing to get notices and collection demands from medical bill collectors, even after they filed bankruptcy and even after they received a discharge.

Perhaps they do not realize the penalties that can flow from this kind of behavior.

Once a bankruptcy is filed, the automatic stay goes into effect. Any creditor or bill collector who becomes aware that the debtor is in bankruptcy is presumed to have “wilfully” violated the automatic stay by continuing efforts to collect. The vast majority of creditors and collectors know this, and obey the law. Those who persist with calls or other collection efforts face a possible motion in the bankruptcy court, seeking damages, payment of the debtor’s attorneys fees, and possibly punitive damages. Usually a simple “cease and desist” letter is sufficient to stop these efforts in their tracks.

But we have seen cases where the notices and calls continue. This should not be tolerated. Bankruptcy protection is a right by federal law.

The authomatic stay ends when the person in bankruptcy receives a discharge. The discharge makes the protections of the automatic stay permanent for most debts. (however, it does not protect against enforcement of mortgages or liens, most taxes or domestic support obligations, student loans and other non-dischargeable debts).

Even here, we have seen collectors continuing to pursue collection. When this happens, post-discharge, the remedy is legal action to hold the creditor in contempt.

In New Jersey, Delaware and Pennsylvania, the disharge protects debtors against collection even if they forgot to list the particular creditor, so long as there was no money paid out to creditors in the bankruptcy.  (We always try hard to make sure everyone who is owed, or who might claim to be owed money, is listed)

This situation needs monitoring and appropriate action. Perhaps too many people have not called the offenders to account….

Navigating the tricky waters of medical bills-to protect yourself against errors and abuses you need to watch and keep good records

This article in the New York Times highlights a problem we have seen increasingly of late, the sometimes confusing morass of medical bills.  http://www.nytimes.com/2012/06/23/your-money/health-insurance/navigating-the-labyrinth-of-medical-costs-your-money.html?_r=1. In this day and age, everyone needs to watch closely and keep careful records. In law as in life “those with the best paperwork tend to win”. Fighting and challenging medical bills, and demanding that insurance companies pay what they should is time consuming, and sadly, sometimes necessary.

Doing this, we know, can only compound the stress and distress of other problems. Unpaid medical bills may, and are often only part of the problem. If you are loaded with other debt, various forms of debt relief, or debt relief planning may be essential.  Medical bill collectors are held to the same rules and standards as other bill collectors.

We recommend:

1. Keep all your medical bills and medical records for at least 12 months, or until your treatment with that provides is finished and fully paid for 6 months.

2. Read the notices on your right to appeal limitations or denials of insurance and exercise your rights.

3. Anytime you speak to someone, take notes of the date, who you spoke to and what was said. If possible and something significant was said, confirm by fax or email.

4. Read all bills or Explanation of Benefits when you get them. Keep complete copies of all medical insurance policies for at least the past 4 years.

5. When signing agreements with providers, always ask for a copy of what you signed. This is your right. Watch out when signing for someone else.

6. If the bill is old, (ie over 6 years in New Jersey) watch out that by making even a small payment you may resurred an old and timebarred debt.

7. Don’t accept any abusive behavior from any debt collector.

Seek qualified legal advice.

 

Medical billing errors can destroy your credit

As a follow up to our previous post, I invite you to read the attached more recent article from the New York Times on how medical billing errors can create havoc with your credit score

http://www.nytimes.com/2012/05/05/your-money/medical-debts-can-leave-stains-on-credit-scores.html?_r=1

We recommend demanding that as part of any resolution of a medical billing error, the offending biller be required to remove and correct any erroneous entries and agree in writing not to repost the erroneous bill as unpaid. Merely marking it as resolved is not enough to prevent damage.

You also have rights under the Fair Credit Reporting Act to dispute the erroneous report with the credit reporting agencies. We suggest this be done in the form of a letter which you send by fax or certified mail (be sure to keep a copy!!)

If this is only a part of your financial problems then you will need to consult with an experienced attorney.

No one should have to suffer with a diminished credit score because a medical service provider made a mistake. But ignoring this aspect is unwise.

Hopefully new laws can be passed to put the burden on the medical providers to correct erroneous reports of unpaid bills.

 

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